Is public sector pay too high?

Estimating differences in public and private sector pay, today’s report from the Office for National Statistics is bound to be picked up by the pundits who regularly denounce public sector workers because they’ll love the headline: “7.8% pay difference between sectors.” What they’re less likely to tell you is that this is because low paid workers do better in the public sector,higher qualified workers are actually 5.7% worse off.

They’ll be wrong, what the figures show is that the public sector manages to get closer to a fair deal for lower paid workers than the private sector and is a recipe for reduced inequality. It also suggests the social advantages of having a highly-unionised workforce.

There have been other reports that have pointed to higher pay in the public sector and we have responded that there are differences between public and private sector workers that mean these reports haven’t compared like with like. These include the fact that public sector workers tend to be older, to have more accumulated experience, are more likely to work in London and that recent figures have included employees of the nationalised banks in the public sector. Most importantly, a higher proportion of public sector workers have higher qualifications (not so many private sector doctors and teachers) and there’s comparatively few public sector workers with no qualifications (not many local authority hairdressers, for instance). Given all these factors, higher public sector pay is less of a surprise; and that is why higher median pay in the public sector isn’t a new phenomenon – as Nigel Stanley pointed out earlier this year, it goes back at least to 1984.

That argument has less force this time round because the ONS article calculates a 7.8% gap “after accounting for: gender, age, occupation, the region that the job is located in, and factoring in qualifications”. Part of the gap may still be accounted for by other differences between the sectors, as the authors acknowledge, their figures do not cover self-employed workers, under- reports the effect of bonuses and does not take into account “other forms of remuneration, for example pension contributions, company cars and health insurance”.

Alastair Hatchett has an excellent post at the IDS blog setting out the significance of these factors. Alastair pointed out to me earlier today that the public-private sector gap isn’t just a matter of higher pay in the public sector, it’s also about low pay in the private sector. According to the latest labour market figures, 23% of whole economy employment is in wholesaling, retailing, hotels and restaurants, where average weekly pay is £279 – 65 per cent of the average for the whole economy.

And that is the key to my response to today’s report. If right-wing commentators produce another outraged screech about feather-bedded fat cats in the public sector, they will be precisely wrong: today’s report shows that workers with degrees are paid 5.7% less in the public than in the private sector. It’s far more a matter of pay in the private sector being held down by outrageously low pay at the other end of the scale, where public sector pay is 6% higher. The report includes a chart that illustrates this:

Now, critics of the public sector can argue, if they want to, that what this country needs is for public sector workers with low qualifications to be dragged down to the pay levels at the bottom of the private sector labour market.

I don’t think that is a winning strategy for them.

It’s increasingly plain that this country’s disgracefully high levels of income inequality not only lead to the social problems pointed out by Richard Wilkinson and Kate Pickett but have also fuelled the high levels of household debt that helped bring about the recession. Today’s report points out that pay inequality in the public sector is significantly lower in the public than in the private sector (inevitable, if you think about what I’ve been saying about pay for highly qualified and unqualified workers):

“The gap between the lowest and highest earners is higher in the private sector with the top 5% (95th percentile) of earners paid around 5.6 times more than the bottom 5% (5th percentile). The gap is 4.6 times in the public sector.”

What today’s report shows is that the public sector is a model of the way the whole economy needs to move.

And, I’d add, strong public sector unions have been an important factor helping to make the public sector more equal – strengthening unions across the economy might have similarly beneficial results in the private sector.

Written by Richard Exell

I am the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues, including the debates about the European social model and labour market flexibility. I also represent the TUC on the Industrial Injuries Advisor…

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